Greggs has warned that inflationary pressures will make its sausage rolls more expensive and curtail profits this year, even as the bakery chain toasted record results.
Roger Whiteside, 63, the bakery chain’s retiring chief executive, said it would be “irresponsible to provide a guarantee that there won’t be further price increases”, because the industry is facing “inflation across the board”. He added that as a result of the pressures, “we do not currently expect material profit progression in the year ahead.”
Shares in Greggs initially dropped by 10 per cent yesterday on the back of the warning, but picked up to be down just 77p, or 3.4 per cent, at £22.06, as analysts highlighted the strength of the company and its growth expectations.
The company, based in Newcastle-upon-Tyne, had said before the Ukraine crisis that it expected price inflation to be about 5 per cent due to higher labour, energy and ingredient costs. But the impact of soaring soft-commodity costs means it now sees inflation running at 6 to 7 per cent.
Greggs said cost pressures had already “necessitated some price increases” at the start of the year, “and further increases are expected to be necessary”. The price of a Greggs sausage roll climbed by 5p last year to £1.05, while other items rose by 10p, prompting outrage from some customers.
Whiteside said that Greggs wouldn’t jeopardise its position as a low-priced food retailer, so its price increases would depend on the competitive landscape.
Despite the inflationary pressures, Greggs has confirmed its plan to grow its shop estate from 2,181 to at least 3,000 shops by opening 150 shops a year. It recently opened sites in Canary Wharf and King’s Cross in London and several “drive thru” sites as it focuses on city locations where rents have fallen during the pandemic.
The update came as Greggs reported the biggest sales and profits in its 71-year-history. Sales rose to £1.23 billion in the year to January, 51 per cent higher than last year when it was disrupted by lockdowns and lower footfall, and a 5.3 per cent increase compared to pre-pandemic levels in 2019.
Whiteside said the sales performance had been achieved despite “unpredictable supply shortages [becoming] a daily feature of our operations”.
Annual pre-tax profits increased to £145.6 million, compared to the £13.7 million loss incurred last year, and were still higher than the £108.3 million recorded in 2019 before the coronavirus crisis. As a result of the profit recovery, Greggs is handing a £16.6 million award to its employees and a 40p-a-share special dividend to investors on top of a 42p-a-share final dividend.
“In my long retail career, I have never experienced such high levels of prolonged disruption to operations, and we owe our success last year to the commitment and willingness of our teams to work around these problems,” Whiteside said.
The chief executive, who has overseen a sevenfold increase in Greggs’ share price during his nine-year tenure, will step down in May and hand over to Roisin Currie, 50, it retail and property director. The company has identified international expansion as its next area of growth.